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Mind the Gap

Transactions are a much better sign of the health of a market than prices, but don’t get as much of the limelight. More activity shows it is easier to move up and down the housing ladder to find the most suitable home. It also helps the economy as people move to find the right job which helps overall productivity.

Transactions fell much further than prices in percentage terms during the financial crisis and have also been much slower to recover, even in London and the South where the markets have been most buoyant.

Compared with last year the level of activity is still subdued, but that may now be beginning to change. As economic conditions improve and confidence grows we would expect pent up demand to begin to shift.

Zones 2 and 3 in London and the commuter belt in zone 6 have all seen a pick-up in activity in recent months. That reflects the flattening of interest in the very prime and central London markets where affordability and earlier capital growth has led buyers and investors to look elsewhere. This switch of allegiance has boosted demand in zones two and three. Further out in the commuter belt, value for money will also have a part to play in the pick-up in activity.

The latest data on time to sell and the difference between asking and achieved prices also point to a pick-up in demand led activity. The stumbling block is still the same old story of a lack of supply frustrating a market improvement. That is the case all over the country – even in the most buoyant London markets. Across the whole of England and Wales the levels of stock available for sale and the numbers of new instructions to sell are all lower than this time last year. That means that price growth will creep up everywhere unless stock picks up too. In addition the supply of credit is still a barrier to some potential movers, particularly those whose homes haven’t recovered to their earlier levels. And of course, first-time buyers face the huge deposit hurdle.

There is some reason for optimism though. While buyer enquiry numbers are still down on last year, this looks like it may be beginning to change. The net balance of buyer enquiries reported by the RICS survey tends to lead transactions by around six months and this has picked up sharply recently. That should augur well for a much better market in the coming months.